Risk Update

Law Firm DMS and Information Risk — Document Security, Ethical Walls, Encryption, DLP and More

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Extending the Value of Document Management Systems in the Legal Profession, Part II” —

  • “Law firms typically have one DMS configured to serve a wide variety of clients. Even if you want them to be, many security issues can’t be ‘die on the hill’ types of concerns, since most legal providers are working to meet the audit and security considerations of many, not one.”
  • “Limiting access to the documents legal professionals need to do their job is the most basic of controls. Generally speaking, working groups should be granted access to the documents supporting the clients whom they support… a concept also known as ‘The Principle of Least Privilege.'”
  • “It probably won’t shock many to hear the not-so-bold statement that certain complexities tend to arise. For example, how should a DMS handle documents which relate not to a single matter, but to multiple clients or matters? How easy is it to associate a document with two matters, or with twenty, one-hundred or one thousand? Under-the-cover capabilities such as workspaces—and the ability to create and administer them (for example, reacting as matters move in and out of trial clusters or substitutions in settlement groups are made)—are vital to enforcing business rules of this nature.”
  • “Another security complexity surrounds legal reference materials or client-related topical groups of documents sets relating to areas like a particular company product line (competitors, facilities, litigation areas, expert witnesses, etc.). Designing control groups for these sets can be challenging, administratively time-consuming functions.”
  • “Finally, the extension of access controls beyond the DMS, meaning maintaining controls prohibiting actions like opening or printing a document after the document is shared outside a DMS, is another emerging trend (not unlike the concept of honoring access controls for documents even when accessed within a DMS from an enterprise search emanating from outside the DMS).”
  • “Of course, law firms routinely construct ethical walls and other controls to protect against representation conflicts… Again, without drilling down too much, simply asking if controls such as ethical walls/conflicts are at least partially governed within a law firm’s DMS is a good inquiry to make.”
  • “Corporate counsel should both confirm their law firms have data loss protection and attempt to ensure the controls are appropriately tuned. I’m not going to lie, it’s not easy, the rules and algorithms are complex. But it’s better to broach the subject with those law firms acting as stewards of your corporate data than to blindly trust that your service providers are doing exactly as you might hope they are doing.”
  • “Today, leading DMS providers offer CMEK, which is essentially a decision point as to who controls the encryption keys for a document set (the customer, or the software provider). The main point here for corporate counsel is ‘who should hold the keys to one’s data’ in the event of circumstances such as a legal order or subpoena. Do law departments want their outside firms to control this? Or, alternatively, are they comfortable with a cloud provider maintaining these keys and potentially directly responding to a court order. Or, for a corporate law department perhaps the requirement might be to administer the keys themselves.”
Risk Update

Litigation Funding — Changing Landscape, Fresh Attention, New Risk Concerns

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Litigation funding needs better oversight” —

  • “Profiting from others’ lawsuits makes some feel uneasy. Many countries still prohibit third parties from funding litigation in any way. The UK, for some time, has had no such qualms, allowing for a £2bn litigation-funding market to thrive.”
  • “Mishcon de Reya, the London law firm known for its pugnacious litigators and big-ticket divorce cases, has taken the concept one step further and set up a £150m joint venture with one of the biggest third-party funders, Harbour, to back cases taken on by the firm. This raises questions about the management of potential conflicts of interest and whether the wider funding industry needs closer oversight.”
  • “Litigation funders — who typically provide a claim’s upfront financing and receive a multiple of those costs as a share of any payout — can provide access to a system that is otherwise expensive and loaded against the underdog: a system where the losing side must pay the other side’s legal costs can be a deterrent to those even with solid claims. The sheer expense of civil litigation — typically running from £2m to even get to trial — not to mention tactics that can draw out proceedings, mean the system is stacked in favour of the deep-pocketed.”
  • “Even at arm’s length, the interest of a client, the interest of a firm and the interest of a funder may diverge. Lawyers are expected by their watchdog, the Solicitors Regulation Authority, to manage any conflict appropriately.”
  • “Tightening the relationship between funder and firm only makes that more difficult, particularly when it comes to setting up a fund that will expressly back the firm’s own cases. Mishcon is also looking to publicly list by the end of the year, adding shareholders to the mix of groups to which it will have to give due regard.”
  • “Another London law firm, Rosenblatt, whose listed parent group RBG also owns a litigation funder, Lionfish, has a prohibition on it funding any Rosenblatt case precisely to avoid potential conflicts.”

Mishcon sets up £150m litigation arm” —

  • “MDR Solutions I will fund litigation and arbitration cases for Mishcon de Reya’s clients, including complex fraud cases, intellectual property disputes, group litigation, and asset recoveries. Harbour – which describes itself as the largest privately-owned litigation and arbitration funder in the world – has committed £150m to the venture, while Mishcon has contributed an undisclosed sum which will be drawn down as needed.”
  • “The funding unit will be operationally separate to the law firm itself, and will be responsible for assessing and investing in prospective cases originated by Mishcon de Reya. It will use ‘sophisticated data science’ to help decide which cases to invest in, as well as human analysis.”
  • “A number of City firms have established litigation funding units in recent months. In August 2020, DLA Piper teamed up with two third-party funders to help clients pursue cases that would otherwise be too expensive, while PGMBM secured a £45m investment in March from North Wall Capital. In its annual report published this week, listed firm Gateley said it is currently in discussions regarding a litigation funding facility of up to £20m.”
  • “However, commentators have raised conflict of interest concerns about exclusive partnerships between law firms and third-party funders, arguing that clients do not have the chance to shop around for the best funding deals.”

New Litigation Funding Rule: Transparency Boost Or Unnecessary ‘Sideshow’ Risk?

  • “The federal District Court for the District Of New Jersey adopted a new local rule on June 21 that requires the parties to a lawsuit to disclose all third-party litigation funding arrangements within 30 days of an initial pleading or transfer, or whenever the information becomes known.”
  • “The federal District Court for the District Of New Jersey adopted a new local rule on June 21 that requires the parties to a lawsuit to disclose all third-party litigation funding arrangements within 30 days of an initial pleading or transfer, or whenever the information becomes known.”
  • “The new local rule also requires a brief description of the financial interest the funders stand to gain if things go their way, as well as disclosure of whether the funders’ approval is required for litigation decisions or settlement. Parties may seek additional discovery of the terms of such an agreement ‘upon a showing of good cause that the non-party has authority to make material litigation decisions or settlement decisions, the interests of parties or the class (if applicable) are not being promoted or protected, or conflicts of interest exist,’ the order said.”
  • “Proponents of the new local rule believe it is necessary because third-party funding agreements can pose ethical problems… The letter also cited the need for parties to know the identity of their litigation adversaries, to know all information relevant to settlement efforts, and to know who may be exercising control or influence over litigation decisions.
  • “[Marla] Decker [managing director of Lake Whillans, litigation finance firm] calls the idea that funders are regularly controlling litigation and not disclosing this to the courts a ‘bogeyman, an imagined problem.'”
  • “She noted that claimants are usually very reluctant to give up control regarding litigation strategy or settlements. They have a built-in incentive to maintain control, Decker said: fear that the funders will serve their own interests and not the claimholders’ interests.”
  • “The new rule states that requests for further discovery into a litigation financing agreement will be granted when there is ‘good cause,’ but it doesn’t provide any guidance as to what that cause might be, she said.”
  • “‘This is why we’d prefer it the way it’s been handled so far — courts taking these discovery requests on an individual basis and crafting an individual order as it would for any question or dispute based on the facts and circumstances,’ Decker added. ‘The scope and regularity of disclosure in cases where it has been sought is simply not consistent and normalized enough to warrant a one-size-fits-all rule.'”
Risk Update

Risk Odds, Ends & Ethics — Reputation Risk, Cloud Security, Judicial Cleverness

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How Law Firms Can Win the Talent War with Public Relations” —

  • “After a year of cutbacks and financial restraint in 2020, law firms have emerged from the pandemic in a mood to hire top talent and pay handsomely for it. The legal trades are abuzz nearly every day with news about associate salaries and bonuses, with each firm trying to outdo the competition as they fight over promising lawyers.”
  • “Today’s legal job market is increasingly candidate-driven, with laterals holding more bargaining power and choice. And they are doing their research… This phenomenon is even more dramatic given how the internet has changed our information expectations… there’s now a heightened expectation that did not exist a few decades ago for firms to publicly tell their stories. Candidates now expect to find a wealth of information at their fingertips, from what it’s like to work at the firm to its culture, values, work, clients and expertise.”
  • “Before taking on controversial clients, in addition to the usual conflict checks and other reviews, firms should now carefully assess the impact to their reputation when considering a problematic prospect. If they proceed with the representation, they should develop a messaging plan for both internal and external audiences.”
  • “While law firms have long prided themselves on their ability — and some would argue their duty — to represent unpopular and controversial clients, the tides are changing. Law firms must now consider how these sorts of clients and matters will impact their reputations, especially among the more socially conscious younger generations.”

Lucian Pera notes: “Our Ethical Duty to Read the News” —

  • “As lawyers, we have an ethical obligation to keep up with news of the latest cybersecurity disasters. And then we should ask our personal tech guru what those disasters mean for us.”
  • “Sure, you say, but where do the rules say a lawyer is going to get disciplined for not reading The New York Times for the latest on big hacks?”
  • “OK, so maybe I overstated a bit. But you’re still reading. And my point is simple, if not as threatening: By reading the headlines about notable hacks and cybersecurity threads, plus just a wee bit more, you can be safe and more knowledgeable about the risks to you and your clients.”
  • “The next time you read a story of a big tech security disaster, consider asking your tech guru two questions about it: First, am I safe from this particular danger? Second, is there anything I can learn from it?”
  • “The world learned in early March 2021 that the bad guys apparently found several vulnerabilities in Exchange server software. That software powers every Microsoft email system, other than those run on its online service, Microsoft 365.”
  • “Those who own their servers had to patch them instantly and then check and security them. Subscribers to Microsoft 365 had outsourced their security and could, quite reasonably, expect that Microsoft would patch its own servers and protect all its users…”
  • “I read this as a testimonial to the likely greater security of (carefully) outsourced IT security and, more generally, the cloud.”

From the “glad this doesn’t apply to risk bloggers (#twocrows)” department, comes this article which caught my eye: “‘Be a Lot Cooler if You Didn’t’: Why Judges Should Refrain from Pop Culture References in Judicial Opinions” —

  • “The use of pop culture references in judicial opinions—sometimes referred to as “dropping pop”—is unfortunately a growing trend. This Article presents the 2021 Briseño v. Henderson opinion as an illustration of the harms of unnecessary pop culture references.”
  • “It provides a thorough analysis of the numerous ways in which pop culture references in judicial opinions are ill advised. It also addresses the arguments in favor of the practice, providing counterarguments to show why any purported benefits are exaggerated and far outweighed by the downsides. Then advice for judges, including best practices, is given. The Article concludes by providing suggested language for the Model Code of Judicial Conduct regarding pop culture references.”
Risk Update

Conflicts Allegations — “Investigation” Conflicts Concern, “Nuclear” Matter with Screening Dispute

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Law Firm Has Potential Conflict of Interest in Doyle Investigation” —

  • “If you described an investigation where the person works with the investigator and makes decisions about future engagements with the investigator, most people would call it a conflict of interest.”
  • “But that’s exactly what’s happening at Santa Clara City Hall. The same law firm that worked with Santa Clara City Attorney Brian Doyle for two years litigating a 2018 pension dispute, Liebert Cassidy Whitmore and its attorney Morin Jacob, is also investigating Doyle’s professional conduct. It’s no secret that Liebert Cassidy Whitmore is conducting the investigation: The City refers information requests about it to Jacob.”
  • “Liebert Cassidy Whitmore specializes in labor law for local governments. In 2019 a former Humboldt County Counsel sued the firm and other county officials, alleging he was pushed out when he brought to light inflated billings by the firm, according to the Spotlight story.”
  • “The law firm’s 2014 agreement with the City states that Liebert Cassidy Whitmore ‘shall make a good faith effort to identify and shall apprise City of those possible conflicts of interest which could affect Firm’s duties to City or to the City Attorney under the California Rules of Professional Responsibility.'”
  • “‘There’s nothing legally improper, but it certainly doesn’t look good,’ said well-known trial attorney James McManis of McManis Faulkner. “You now have someone with a relationship [with Doyle] investigating him. ‘Santa Clara would have been better served,’ McManis continued, ‘if they had hired an attorney with no connection to the City and who didn’t know any of the people involved,” McManis said. Hiring a firm with years of experience working with Doyle to investigate him “is not a very smart thing.'”

Curtiss-Wright Wants DLA Piper DQ’d In $30M Supply Fight” —

  • “Curtiss-Wright Electro-Mechanical Corp. said in a disqualification motion on Thursday that it was represented in 2013 by a Swedish attorney, now working for DLA Piper, in a substantially similar dispute with Westinghouse Electric Co. LLC over the supply of reactor coolant pumps for nuclear power plants in China. That dispute is ongoing and subject to arbitration in Sweden, Curtiss-Wright said.”
  • “Because the Swedish DLA Piper attorney, Karl-Oskar Dalin, received confidential information about Curtiss-Wright’s defenses against Westinghouse’s claims in the China supply dispute, DLA Piper has a conflict of interest in representing Westinghouse in the Georgia case, Curtiss-Wright said.”
  • “‘Mr. Dalin represented C-W with regard to substantially similar liquidated damage terms in the China purchase order as are in issue in the above-styled litigation,’ Curtiss-Wright said in a brief supporting its motion for disqualification. ‘C-W does not consent to DLA Piper’s representation of Westinghouse in this action or in a related arbitration proceeding in Sweden … with or without some form of screening efforts with respect to Mr. Dalin and C-W’s communications with him regarding such matters.'”
  • “Curtiss-Wright said in its disqualification motion that related circumstances exist between the Vogtle and Summer purchase orders and the China one being arbitrated in Sweden, with respect to the timing of supply of the reactor coolant pumps.”
  • “It said Dalin was retained by Curtiss-Wright in October 2013, when he was at Swedish law firm G. Gronberg Advokatbyra, to represent it in the dispute with Westinghouse over the supply of reactor coolant pumps for the Chinese power plants. Dalin received confidential information from Curtiss-Wright about the strengths and weaknesses of its defenses in that case, it said. Dalin joined DLA Piper in 2016 and is a partner in its Stockholm office, according to the law firm’s website.”
  • “Curtiss-Wright said Georgia’s professional conduct rules prohibit a lawyer who has formerly represented a client in a matter from representing another person in the same or a substantially related matter, in which that person’s interests are materially adverse to the interests of the former client. This rule can be worked around if the former client gives informed written consent, which Curtiss-Wright, as the former client of Dalin, does not, it said.”
  • “Curtiss-Wright argued that DLA Piper can’t avoid disqualification through ‘screening’ under Georgia’s professional conduct rules, which allow attorneys who are former judges or former government attorneys to be screened to avoid disqualifying their new law firms or organizations by imputed conflicts. ‘The [rules] do not, however, allow other types of attorneys to avoid imputed conflicts by screening,’ Curtiss-Wright said.”
Risk Update

Down on OCGs — Industry Survey and Experts Complain about Compliance

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Law.com pulls together several surveys and points of view to remind us: “Outside Counsel Guidelines Are Straining Law Firm-Client Relationships” —

  • “OCGs are becoming increasingly prevalent. They’re also becoming increasingly varied and complex, leading many law firms to either waste time trying to reconcile them all or to just ignore them altogether. Needless to say, neither of those scenarios is ideal for a healthy law firm-client relationship.”
  • “Only 32% of responding firms said they were confident that more than 50% of their lawyers actually knew the OCGs for their matters… But remaining ignorant to clients’ OCGs creates the potential for firms to leave money on the table—or at least leave the proverbial check in the mail.”
  • “‘Law firms may find themselves in a difficult situation if they do not comply with a client’s guidelines because they failed to read them,’ Dentons partners Klevens and Clair wrote. ‘Such a defense may not be particularly strong in a subsequent dispute or may otherwise create friction with a client that could be avoided.'”
  • “Klevens and Clair pointed out that while law firms’ engagement letters are often drawn specifically to define the client relationship and, at times, to shape a law firm’s potential exposure to the client, OCGs may not provide those same protections.”
  • “‘For example, the definition of who the ‘client’ is in a set of outside counsel guidelines could be expansive, including not only the direct corporate client but also related entities,’ Klevens and Clair wrote. ‘Such a scenario could create complications for a law firm’s exposure or in future conflicts analysis. Indeed, the law firm could be found to owe duties to an entity that the law firm did not expect—but might have been able to consider or negotiate if the risk had been identified.'”
  • “But to the extent that OCGs are creating more nonbillable headaches for outside counsel, clients can help by streamlining their communications to highlight what’s most important to them.”
  • “Argopoint partner Jason Winmill told Law.com’s Guzman that OCGs are often unfocused and stuffed with minutiae. ‘Counsel guidelines are both too strict and not strict enough,” Winmill said. “And I’d say counsel guidelines often are lengthy and focus a lot on minutiae that doesn’t ultimately add up to much more than a hill of beans.'”
  • “The problem is compounded when lawyers have to work for more than a dozen clients, in many cases.”
Risk Update

Conflicts Concerns — Beware “Midstream” Conflicts, Call for Case “Pause” Permitting DQ Pursuit

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Lawrence A. Kasten, General Counsel at Lewis Roca reminds: “Beware Of Midstream Conflicts” —

  • “The judge glances at you as he announces his ruling granting your opponent’s motion to disqualify your law firm. You think back to the day, one year earlier, when the case came in the door. It was a cold Tuesday morning. The phone rang at 7:30 a.m. You remember it well, because you hadn’t even had a chance to take your first sip of coffee.”
  • “Even without caffeine, you remembered to caution Ms. Jones not to reveal any confidential information and to provide you with the names of all parties who foreseeably might be involved in the case. After running the names through your firm’s conflicts database, you received the all-clear. You diligently filed a record of the conflicts check and the steps you took. For the past year, you have worked hard on the case, putting it in good position for a satisfactory result for Widgets.”
  • “So how did you end up getting disqualified? Ten months into the litigation, a representative of your co-defendant, the manufacturer of the allegedly defective product, testified at a deposition that a component was made by Sprockets, Inc., a small company in a remote part of the state. Plaintiff amended the complaint to add Sprockets as a defendant, and, without doing a new conflicts check, you filed a cross-claim. As it turned out, unknown to you, one of your firm colleagues has been giving Sprockets advice about its employment contracts.”
  • “Even though the matters are entirely unrelated, Sprockets sought to disqualify you and your firm, on the ground that you had an imputed concurrent client conflict of interest under ER 1.7 and ER 1.10. The judge agreed.”
  • “Too often, attorneys view conflicts clearance solely as a new-matter intake issue. Once conflicts clear, lawyers may forget to analyze subsequent developments that may create midstream conflicts of interest.”

Read the full article for commentary on incorporating supplemental conflicts checks, new party shifts, non-party awareness, and parties “changing character.”

OptimisCorp Seeks Suit Halt Amid Bid To DQ Plaintiffs, Bayard” —

  • “OptimisCorp wants to pause a derivative suit in Delaware Chancery Court involving claims against the company’s CEO and other officers, pending decision on its bid to have plaintiffs and their counsel, Bayard PA, disqualified because of ‘conflicts’ it says ‘threaten’ to prejudice the case.”
  • “In a letter brief to Vice Chancellor Morgan T. Zurn on Monday, OptimisCorp attorney Theodore A. Kittila of Halloran Farkas & Kittila LLP argued that a suit filed by William Atkins, Gregory Smith, and John Waite, former company officers, should be put on hold pending a decision about whether they and their counsel will be disqualified. ‘Over the last two years, Waite, Atkins, and Smith played keep-away with a multi-million company asset while simultaneously levying on company accounts,’ the letter asserted.”
  • “In its disqualification motion, OptimisCorp argued that since the three are also represented by Bayard in the other suit related to their handling of the arbitration award, conflicts could arise… Among potential conflicts, OptimisCorp argued, is that ‘discovery will commence against Atkins, Smith, and Waite in the related action, and such discovery will directly implicate Bayard’s advice concerning the handling of the prior derivative award.'”
  • “Also, allowing the derivative suit to proceed before a decision is made on disqualification ‘would result in a waste of judicial and party resources if disqualification is ultimately ordered as a remedy,’ the motion argued.”